Vancouver Real Estate in March 2016: “May You Live in Interesting Times!”

In March the Metro Vancouver real estate market reported 5,000 sales, the first time it has hit that number. The demand has not eased up although it may be that prices are plateauing at this time. Sellers have the expectation of ever rising prices and are worried about leaving money on the table so are not jumping on offers unless they are significantly over the list price.

Sales in March were 56% above the 10 year average for the month. The benchmark price for detached homes is 27.4% higher than March 2015, for a townhouse the benchmark is up 20.1% and for apartment properties it’s up 18.8% in a year. The Metro Vancouver detached benchmark is $1,342,500 and higher in municipalities adjoining Vancouver. In Vancouver Westside the benchmark is $3,072,000.

There is still angst about who is buying the properties and the lack of affordability in the marketplace. However, the affordability crisis and the government’s response to it has been overshadowed by the scandal created by the illegal business practices of New Coast Realty and others. It became clear as the "shadow flipping" practice was exposed that there was a culture in some companies of not working in the best interest of their clients but rather themselves. All exacerbated by an unwillingness of the regulatory bodies to enforce their rules with meaningful penalties. New Coast Realty has been placed under Council supervision with an approved Managing Broker. The owner, a non-realtor who speaks only Mandarin, is no longer allowed to direct his agents to practice unethically.

When there was a critical mass of public and realtor opinion against the laissez-faire attitude of the government, the Real Estate Council and the Real Estate Board action was taken. Carolyn Rogers, Superintendent of Insurance for the province and overseer of real estate and financial markets was appointed to chair an investigatory committee to look into the complaints. There has been an interim report highlighting changes to be made to restore the public trust in the real estate industry. Ms Rogers commented that there were complaints from financial market files but only the real estate stories captured the public’s attention. The full report will be published in May and highlighted here at that time.

The conflict arises as the world shrinks and money moves around the globe to safe havens. London, New York and Vancouver are the top 3 choices of clean and dirty money. In New York mid-town very tall (90 stories) thin towers are arising over Central Park and other landmarks. According to Vanity Fair the condos are being sold to the top 1% of the 1% at upwards of $8000. per square foot. A penthouse at 432 Park Avenue on the 96th floor sold for $95 million, $11,700 per square foot. These condos have been called a safety deposit box in the sky as they are purchased by limited companies with undisclosed international owners who may be in New York one or two weeks a year. Maybe not at all. Global money is looking for a place to land and New York, London and Vancouver are the safest and most desirable locations in the world.

However, tax and money laundering enforcement can change the dynamics of any market. It could happen here if CRA actually does anything about money laundering and tax avoidance through real estate. According to VICE NEWS in the US "...the buying frenzy may officially be over. In January 2016 the United States Treasury Department announced that it would begin a six month trial of closely monitoring all-cash sales of ultra-luxury condos in Manhattan and Miami for any sign of financial crimes such as money laundering.

All-cash buyers of properties selling for more than $3 million in Manhattan, and $1 million in Miami, will be required to disclose the name of the true buyer or owner — the individuals behind the anonymous limited-liability or shell companies that often make the purchases.

The action by the federal government could chill the already-slowing market and may be the final nail in the coffin for ultra-lux real estate, according to some realtors and analysts." There is now a wait and see if this is a continuing program or a one off to be cancelled when it’s experimental time frame ends.Developers are talking of targeting lower tier wealthy locals in the under $15 million price range who won’t be caught up in an international identity program.

There is the same outcry in London and New York as in Vancouver. Local residents are priced out of the market and have to move elsewhere. Bidding wars for rental units are a common occurrence for people who want to live in the city. As Premier Christy Clark said in the Legislature while refuting the NDP leader "...people from around the world live in British Columbia which is still a free market...we are still a capitalist society where people can invest from around the world."

A real estate website in Shanghai promoting Vancouver properties uses the price comparison between Beijing, Shanghai and Vancouver. According to Vanfun.com which is Weibo’s social media website a downtown property in Beijing costs 100,000 renminbi per square metre (CAD$19,731.), in Shanghai 120,000 RMB per square metre (CAD$23,677.) and in Vancouver 20,000 RMB per square metre (CAD$3,946.). It’s easy to see the advantage of a Vancouver investment.

Canada’s long standing practice of selling citizenships with no strings or taxes attached to wealthy immigrants and not checking the source of the funds being wired into Canadian accounts to pay for real estate transactions has made Vancouver a safe haven and especially desirable to wealthy Chinese anxious to get their funds out of China. The Investor Immigrant program was cancelled by the former Conservative government due to abuse but is being continued by Quebec who requires all Investor Immigrants to leave their money in Quebec and move to BC or Ontario. The exposure of fraudulent immigration practices and large scale money laundering has resulted in the Liberal government increasing resources to the Canada Revenue Agency to investigate illegal activities.

The low loonie and the beauty and safety of Vancouver is attracting investors to Vancouver. The residential real estate market gets all the attention but there is increasing activity in the commercial sector. Chinese owners of major corporations who have emigrated to Vancouver are moving their head offices here. The availability of local tech talent and a much lower cost of doing business attracts them. They would like to have home and work in the same place. Other startups are using Vancouver as a launching pad. An increasingly popular purchase for deep-pocketed Chinese investors is a vineyard in the Okanagan. A happy combination of land and saleable product. BC wines are well-received in China.

According to the KPMG Competitive Alternatives Report Vancouver has the 5th lowest costs for doing business of 29 global cities but it’s biggest competitive advantage is the devalued Loonie. Colliers research shows that Vancouver and Toronto are attracting commercial real estate investors. Of the $1.85 billion invested in the past 6 months 42% came from China and 48% from the US.

The real estate market in Metro Vancouver is fulfilling the old blessing/curse: "May you live in interesting times"!